Gilt Trade Issue

GiltTrader1

In 2023 my bank offered me the opportunity to invest in low coupon gilts and index-linked gilts that were very short term, one expired in March 2024 and one in January 2026. They pointed out that the prices were attractive and I would be only liable to pay tax on the coupon but the capital gain once the Gilt expired and was repaid at 100% that gain would be tax free. That was a great transaction however they approached me shortly before the first gilt  expired in March 2024 and suggested I increase my exposure and they came up with a portfolio of gilts again with low coupons with expiry dates 1, 3, 4,5, 7, and 10 years out. Given my experience with the initial trades I was interested but concerned about the longer dates but they said that a) if I held on I would 'always recover' my investment at 100 on maturity and b) they felt that there would be plenty of interest rate cuts in the pipeline  to facilitate an early exit. They sent me a Spreadsheet showing a total of X to be invested with a cover email that said  
"Coming back to you on the gilts proposal to re-invest your inflation-linked gilt maturing this Friday (£Y) + £Zm of cash on deposit, so the proposal is for a total of £X". 

The key word is "re-invest". The inflation-linked gilt made me a gain of a significant sum and as I am retired I would have expected to have had the Bank ask me whether I wanted to take that gain off the table into my current account. Instead I was not aware that they rolled over the total (£Y) into the new set of Gilt purchases. I did not pick up on this for a few months and in May 2024 I got an email that included this

"Your accountant will be able to confirm that the gain of £(significant sum) is not subject to tax.  
You just pay tax (income) on the interest the Gilt pays out.  It pays the interest twice a year and you received £(minor amount) on in September 2023 and £(minor amount) in March 2024. "

So at that time that person wasn't aware that I never got the significant payment. 

I am currently taking significant losses if I exit my portfolio due to higher yields on the 7 and 10 year Gilts pushing prices down if I sell now. 

I am not happy that I never got the "significant sum" and when I bring it with the Bank they say there is nothing that they can do about that and they rely on the above 're-invest' wording but the second email was from another person three months later who wasn't aware of it having been 're-invested' and I was also told 'it was normal' to reinvest - which cant be true - what's the point of that?

I would like to know if the Bank breached its own procedures - surely they must have a procedure that asks its client for instructions  if they want to take the gain or not??

I was also told that I have not lost the significant sum as its been reinvested but although that is true I would never have asked for the gain to be re-invested as its tax free and money which had  a PV benefit over future money, I have no significant income and would have definitely said that I wished to have that gain in my current account.

I also brought up how  inflation will eat into any gain in 7 and 10 years on these longer term gilts if I hold to maturity and given the UK's current debt mountain maybe I will get nothing by then.

I agree that my significant sum is still 'in my portfolio' but as I am tempted to sell everything due to the current uncertainties in the UK, it will be 'lost' along with other sizeable losses.

My question's based on above 
1. Has the Bank made a mistake and wants to cover it up by saying 'its normal to reinvest" and relying on their email
"Coming back to you on the gilts proposal to re-invest your inflation-linked gilt maturing this Friday (£Y) + £Zm of cash on deposit, so the proposal is for a total of £X"


To be fair (£Y) above was the gross amount of cash I received from the expired Gilt but I didn't pick up on that at that time. I feel that the Bank let me down and didn't make it clear what they did/meant.

I expected to receive a request of what I wanted to do with the gain which I never received.

2. The Bank are now asking me (as I keep complaining about this matter) whether I want to file a formal complaint. I don't know what to do. I have not had a good experience of using the Financial Ombudsman in the past - the FO just seems to want each side to settle and make compromises.


Any thoughts are appreciated 

wmb194

GiltTrader1 said:

In 2023 my bank offered me the opportunity to invest in low coupon gilts and index-linked gilts that were very short term, one expired in March 2024 and one in January 2026. They pointed out that the prices were attractive and I would be only liable to pay tax on the coupon but the capital gain once the Gilt expired and was repaid at 100% that gain would be tax free. That was a great transaction however they approached me shortly before the first gilt  expired in March 2024 and suggested I increase my exposure and they came up with a portfolio of gilts again with low coupons with expiry dates 1, 3, 4,5, 7, and 10 years out. Given my experience with the initial trades I was interested but concerned about the longer dates but they said that a) if I held on I would 'always recover' my investment at 100 on maturity and b) they felt that there would be plenty of interest rate cuts in the pipeline  to facilitate an early exit. They sent me a Spreadsheet showing a total of X to be invested with a cover email that said  
"Coming back to you on the gilts proposal to re-invest your inflation-linked gilt maturing this Friday (£Y) + £Zm of cash on deposit, so the proposal is for a total of £X". 

The key word is "re-invest". The inflation-linked gilt made me a gain of a significant sum and as I am retired I would have expected to have had the Bank ask me whether I wanted to take that gain off the table into my current account. Instead I was not aware that they rolled over the total (£Y) into the new set of Gilt purchases. I did not pick up on this for a few months and in May 2024 I got an email that included this

"Your accountant will be able to confirm that the gain of £(significant sum) is not subject to tax.  
You just pay tax (income) on the interest the Gilt pays out.  It pays the interest twice a year and you received £(minor amount) on in September 2023 and £(minor amount) in March 2024. "

So at that time that person wasn't aware that I never got the significant payment. 

I am currently taking significant losses if I exit my portfolio due to higher yields on the 7 and 10 year Gilts pushing prices down if I sell now. 

I am not happy that I never got the "significant sum" and when I bring it with the Bank they say there is nothing that they can do about that and they rely on the above 're-invest' wording but the second email was from another person three months later who wasn't aware of it having been 're-invested' and I was also told 'it was normal' to reinvest - which cant be true - what's the point of that?

I would like to know if the Bank breached its own procedures - surely they must have a procedure that asks its client for instructions  if they want to take the gain or not??

I was also told that I have not lost the significant sum as its been reinvested but although that is true I would never have asked for the gain to be re-invested as its tax free and money which had  a PV benefit over future money, I have no significant income and would have definitely said that I wished to have that gain in my current account.

I also brought up how  inflation will eat into any gain in 7 and 10 years on these longer term gilts if I hold to maturity and given the UK's current debt mountain maybe I will get nothing by then.

I agree that my significant sum is still 'in my portfolio' but as I am tempted to sell everything due to the current uncertainties in the UK, it will be 'lost' along with other sizeable losses.

My question's based on above 
1. Has the Bank made a mistake and wants to cover it up by saying 'its normal to reinvest" and relying on their email
"Coming back to you on the gilts proposal to re-invest your inflation-linked gilt maturing this Friday (£Y) + £Zm of cash on deposit, so the proposal is for a total of £X"


To be fair (£Y) above was the gross amount of cash I received from the expired Gilt but I didn't pick up on that at that time. I feel that the Bank let me down and didn't make it clear what they did/meant.

I expected to receive a request of what I wanted to do with the gain which I never received.

2. The Bank are now asking me (as I keep complaining about this matter) whether I want to file a formal complaint. I don't know what to do. I have not had a good experience of using the Financial Ombudsman in the past - the FO just seems to want each side to settle and make compromises.


Any thoughts are appreciated 

*gilt (all lowercase)


'"Your accountant will be able to confirm that the gain of £(significant sum) is not subject to tax." ...  So at that time that person wasn't aware that I never got the significant payment. ... I am not happy that I never got the "significant sum".'

You did make the capital gain but it was reinvested.

What kind of service is being offered to you? This sounds like a managed portfolio. If so, you probably signed the authority to allow the bank/broker to reinvest the money without consultation. What do the terms and conditions say? Presumably you're paying a fee for this service?

leosayer

What is the nature of your relationship with 'The Bank'.

In other words, what service are they offering you?

Hoenir

GiltTrader1 said:

 The inflation-linked gilt made me a gain of a significant sum and as I am retired I would have expected to have had the Bank ask me whether I wanted to take that gain off the table into my current account. 

My immediate thought is that of why would they?  The bank would have expected the client to have provided clear instructions in advance. The fact that you didn't miss the money. Suggests it wasn't high on your agenda either at the time.  

I expected to receive a request of what I wanted to do with the gain which I never received.

That's very much service level specific and what you are paying the advisors to do. 

GiltTrader1

thanks everyone for the above comments.

1. web194 - it was an advisory service at the beginning and when the first Gilt matured it was reinvested along with new investment I provided but I didn't ask for the 'significant gain' to be reinvested. This 'new investment' together with the maturing proceeds of the gilt in March 2024 was then 50% placed in a portfolio on a discretionary basis and 50% on an advisory basis. Advisory meant that I had control over the management of those gilts but passed control on the discretionary portfolio to the Bank. My complaint is that the Gilt maturing was reinvested including the significant gain and I was not consulted as to whether I wanted that portion reinvested.  
2. Leosayer - hope above answers your question.
3. Hoenir. - I imagined the Bank would normally ask me for clear instructions of what I want to do with the gains from the maturing gilt. As it's tax free why would I reinvest it?

Do any of you have experience of what your bank/broker does when a Gilt matures. I assumed that there would be some sort of standard procedure to formally request the client what he wanted to do like what happens when a Fixed Rate Deposit, the same bank asks me for instructions. Do I want to renew if so what amount and for what period. I was in my above gilt case happy for the principal amount to be reinvested but not the tax free gains.

Again thanks for your time and comments 

Hoenir

Was the maturing Gilt held in the discretionary half of the portfolio?

kimwp

I think it's pretty normal for "re-invest" to mean the whole amount - it's effectively compounding, which is much better for wealth building. And they told you the amount that would be reinvested, which included the gain, so I think this is your mistake tbh - they couldn't have been clearer.

GiltTrader1

Hoenir- no that discretionary portfolio was established after the 'success' of the initial first trade. When they talked reinvesting the proceeds I thought they meant the initial capital sum invested not the 'gain' that they talked about at the beginning that would arise if held to maturity which it was and I it seems wrongly assumed I would get that tax free gain or at least be asked if I wanted it. 
More-complicated-than-that. It was a tax free amount as the Gilt had a very low coupon. I 100% wanted that tax free gain in cash but it never happened and I need to decide if I am to take action either legally or through the Ombudsman. 
kimwp. OK take your point but I am trying to establish whether Banks should have as a matter of course / practice send a closing statement showing the gain and requesting information as to what my instructions are to reinvest or take the gain off the table.

kimwp

GiltTrader1 said:

Hoenir- no that discretionary portfolio was established after the 'success' of the initial first trade. When they talked reinvesting the proceeds I thought they meant the initial capital sum invested not the 'gain' that they talked about at the beginning that would arise if held to maturity which it was and I it seems wrongly assumed I would get that tax free gain or at least be asked if I wanted it. 
More-complicated-than-that. It was a tax free amount as the Gilt had a very low coupon. I 100% wanted that tax free gain in cash but it never happened and I need to decide if I am to take action either legally or through the Ombudsman. 
kimwp. OK take your point but I am trying to establish whether Banks should have as a matter of course / practice send a closing statement showing the gain and requesting information as to what my instructions are to reinvest or take the gain off the table.

I agree with more-complicated that you should accept this as a learning point. "proceeds" means the outcome of an event, so cannot mean the initial investment. 

Presumably on the form, there was an option to reinvest a smaller amount? Did you expect them to send you a letter about the initial capital and a separate letter about the gain?

GiltTrader1

kimwp : there was no form hence no option - yes I expected a formal letter for instance like they did when they sent me a letter detailing the fees they charged.
More complicated than that: I never got the chance to express my wish as I never expected them to do that - the whole point they said at the beginning was that they could make me a significant gain which I expected to spend.

 I do appreciate all your comments. 

poseidon1

OP after a bit of Q & A session here, the conclusion has been for you to treat your saga as a learning experience.

I think I would I advise a more fundamental rethink of the mandate you have granted the bank which by the way I assume is a private bank ( although you are not explicit on this point).

From what you say, your venture into gilt investing was first initiated on an advisory basis. The bank came to you with a specific  investment proposition, you agreed to go ahead as outlined and all went well with that deal.

The problem as I see it from your point of view, is that what started as a purely advisory service, you allowed to transition into a discretionary  agreement ( presumably by signing to that effect) granting the bank freedom to roll in and out of gilt investments as long as this meets the general brief of tax free returns on maturity.

I get the distinct sense you would be far more comfortable returning to a purely advisory service akin to how you started your gilt journey with them, ie the bank comes to you  with a proposition after (or just before ) each maturity and asks you if you wish to participate on a case by case basis.

Certainly, when I was representing private clients whose portfolios were handled by private banks and stockbrokers  on an advisory basis, this is precisely the procedure adopted. It is more time consuming for both the portfolio managers and the end client compared to a discretionary mandate but ensures the client retains control, which is something I sense you wish to reclaim here.

Having given the bank discretion, you probably have little scope to roll back the  past deal you are unhappy with, but withdrawing their current mandate in favour of an advisory agreement  going forward should ensure auto reinvestment does not occur again unless at your specific request.